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Looking Under the Hood of Biden’s New Clean Car Standards

Aug. 18, 2021, 8:00 AM

The Environmental Protection Agency’s Aug. 10 proposed rule strengthens the greenhouse gas standards for light-duty vehicles (passenger cars and light trucks). The new proposal would undo part of the damage done by the Trump administration’s so-called SAFE rule, which significantly weakened the Obama administration’s standards for model years 2021 through 2025 and set forth a meager standard for model year 2026.

But, maybe more importantly, it hints at the direction of future vehicle standards.

From one perspective, the new action hardly seems bold. Understandably, the Biden administration cannot address the additional pollution that Trump’s rule allowed for vehicles in model years 2021, which is already out, and 2022, which is currently being rolled out.

The newly proposed standards for model years 2023 through 2025 are not particularly ambitious, resulting in smaller emissions reductions than those that the Obama administration had prescribed back in 2012. And the Biden administration is also taking a cautious approach for the 2026 model year, though it is seeking comments on whether to require more significant reductions.

But from a different vantage point, the action is significant for two reasons.

First, it restores integrity into the regulatory analysis by setting aside the indefensible approach at the root of the Trump administration’s rule.

Second, it provides analytical underpinnings for considerably more stringent standards for the next round of rulemaking, which will affect model years beginning with 2027.

Restoring Analytical Integrity

In justifying its SAFE rule, the Trump administration relied on a significant number of obvious analytical flaws. If these moves had not been quickly nipped in the bud, as the Biden administration is now doing, they could have stood in the way of more stringent car standards as well as greenhouse gas regulations in other areas.

First, the Trump administration had put a strong thumb on the scale against any greenhouse gas regulations. Despite a cost-benefit analysis showing that weakening the standards led to more costs than benefits, the Trump administration suggested that the rule was justified because it could lower the up-front costs of (dirtier) cars—even if these savings were outweighed by higher fuel costs and pollution damages.

The Biden administration explicitly and forcefully rejects the approach of prioritizing cheaper cars above overall societal well-being, including the benefits from decreased fuel use and reductions in greenhouse gases and other pollutants.

Second, even though the Trump administration had taken the fuel savings into account in its main analysis, it raised questions about them in a sensitivity analysis, suggesting that manufacturers’ investments in emissions-reducing technology could otherwise be used for different attributes that consumers might value, like higher acceleration.

It then, quite shockingly, modeled a scenario under which manufacturers would provide these alternative attributes for free. The Biden administration’s approach abandons this exercise in analytical sophistry.

Third, the Trump administration had severely undervalued the benefits of greenhouse gas reductions by using a flawed methodology that purported to look at climate effects only within the geographic borders of the U.S.

The U.S. District Court for the Northern District of California struck down this approach as arbitrary and capricious, finding that it was “riddled with errors.” The Biden administration, following the determination of the newly reconstituted Interagency Working Group on the Social Cost of Greenhouse Gases, properly conducted the analysis using an estimate of global damages that had been upheld by the U.S. Court of Appeals for the Seventh Circuit.

Laying the Groundwork for More Stringent Standards

The transportation sector is the largest source of U.S. greenhouse gas emissions, accounting for 29% of the total, and light duty vehicles account for 58% of transportation emissions. Given this large share, the U.S. cannot achieve the ambitious commitment President Biden made in rejoining the Paris agreement—to cut greenhouse gas emissions by half by 2030—without requiring extremely ambitious emissions reductions for light-duty vehicles for model years starting in 2027.

The analysis in this proposed rule lays the groundwork for that to happen.

Most importantly, it shows that more stringent alternatives would already result in higher net benefits. Regulatory impact analyses are required to analyze not only the chosen standard but also some alternatives.

Consistent with this requirement, the proposed rule analyzes one alternative that is less stringent than the proposal and another that is more stringent. The EPA determined that the more stringent alternative, which would have restored the Obama administration’s standards for model years 2023 through 2025 and then linearly increased the stringency for model year 2026, has higher net benefits than the chosen approach, which is not quite as stringent as the Obama standards.

Executive Order 12866, which governs how agencies do their regulatory impact analysis, requires that agencies choose the regulatory alternative that maximizes net benefits. The Biden administration is not following this command, and its explanation is not particularly persuasive: “EPA believes a lower level of stringency increase for 2023 may be appropriate taking into consideration lead time.”

But even if that were necessary for 2023, the EPA does not explain why the more ambitious reductions set forth in this alternative could not have been implemented for model years 2024 through 2026. Maybe the EPA will decide to implement at least some version of the more stringent alternative in the final rule, in light of comments that are very likely to point to the requirements of the executive order.

But even if it doesn’t, the analysis showing that a more stringent alternative has higher benefits will facilitate the justification of more ambitious standards for the EPA’s next rulemaking.

Another positive development on this front is the review of the social cost of greenhouse gases (SC-GHG) that is currently being undertaken by the Interagency Group tasked by President Biden to determine final values by January 2022.

One of the variables that is receiving the greatest scrutiny in the process is the choice of discount rate used to determine the present value of future consequences. There is considerable support for lowering this rate from 3%, on which the Interagency Group’s central SC-GHG estimate is currently based, to 2%, in part because of the significant decrease in long-term interest rates.

Such a change would increase the social cost of carbon by two-and-a-half times, showing the benefits of greenhouse gas regulations to be much larger and therefore providing justification for considerably more stringent standards for future model years (starting with 2027).

The emissions reductions from the Biden administration’s proposed rule are far from ambitious. But the rule is noteworthy for restoring analytical credibility and paving the way for considerably more stringent standards in future years.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Richard L. Revesz is the AnBryce Professor of Law and Dean Emeritus at the New York University School of Law, where he directs the Institute for Policy Integrity.